Lawmaker Says Korail Wasting Tax Money

Contrary to the Board of Audit and Inspection’s order on large scale downsizing of the companies financed by the Korea Railroad Corporation (Korail), a recently released report indicated that the large scale downsizing is not a proper measure. Such opposite views are expected to trigger debate.

A report released by Korea J Mark, a consulting company, and Hanul Accounting Corporation, which was requested by the Korail, stressed among the Korail’s affiliates, there are only a few companies (such as Vcash) that are to be liquidated or amalgamated because of insolvency.

After considering the BAI’s advice and the report’s recommendation, Korail plans to decide its final reform measure.

According to this report, “The Downsizing of Korail Financing Companies,” which Dong-A Ilbo obtained via Lee Nak-yon, a lawmaker of the Democratic Party, experts recommend three alternatives: first, sub-grouping the companies according to correlation and particularity; second, coordinating or transferring the companies in accordance with strategic projects on the basis of existing structure; third, professionalizing the companies by making them strategic business units and working together.

The report recommends the third alternative as the best plan, under which the current size is maintained and some improperly run companies are sold to improve the efficiency of an entire group of companies.

It also views that even though there are some parts overlapping in business of each company, it can play a positive role in boosting competition among planned strategic units.

This is a remarkably reduced size plan compared to the BAI’s recommendation that notified long-term deficits of Korail engendered by its reckless extension of business in 2004 and requested Korail to liquidate five companies, including the Center for Comprehensive Support of Railroads in Korea and three companies, including Pabalma.

As of late 2005, the amount of Korail financing deficit reached 7.519 billion won, which increased by one billion from 6.451 billion won in 2004.

The BAI said, “Knowing that it will be difficult to establish affiliated companies after the Korean National Railroad (KNR) was transformed into Korail, the KNR hastily established affiliated companies in 2004, thereby creating a number of insolvent affiliates.”

In regard to this, the report said, “There are some points opposite to the BAI’s recommendation,” adding, “However, this is an inevitable choice to minimize confusion and will not hinder personnel management of these companies.”

“We will vote for the recommendation of the report and modify some parts that are indicated as problems,” a source from Korail said. “The deficit of the affiliates was an inevitable outcome because the companies had to settle the account as soon as they were established in 2004 and, thus had little skills in operating business.”

In regard to this, some pointed out that Korail seems hesitant over large-scale downsizing because of its conspiracy with retired Korail employees who want to stay in work.

“According to the BAI, of executives in Korail’s affiliates, the retired employees of Korail account for 80 percent,” said Lee. “The Korail’s measure reform is nothing but an expedient to keep its retired employees working. This company is just squandering national tax money now.”

Tae-Hun Hwang beetlez@donga.com